Cocoa Prices Weighed Down
Cocoa prices continued to be weighed down by near-term demand concerns which have kept the market within its December consolidation zone. With bullish supply factors providing support, however, cocoa should hold its ground. A negative shift in Euro zone equity markets put carryover pressure on cocoa prices late in the day. Production issues in West African growing nations due to a lack of adequate fertilizer and pesticide use continues to underpin cocoa prices. The latest weekly reading for Ivory Coast port arrivals came in above the comparable week last year, and that has kept their full-season total ahead of last season pace. However, both Ghana and Nigeria have had outbreaks of black-pod diseases that will reduce their cocoa output. A mild rebound in global risk sentiment should provide early carryover support to the cocoa market.
If global risk sentiment can see a positive turnaround, coffee may be able to bounce. A more than 1.5% rally to a 2 1/2 week high in the Brazilian currency provided significant carryover support to the coffee market, as that eases pressure on Brazil’s farmers to market their coffee supplies to foreign customers. The La Nina weather event continues to have a negative impact on Brazilian and Colombian production which also underpinned coffee prices this week. There has been a wide range of early forecasts for Brazil’s 2023/24 coffee production, but their upcoming Arabica crop will be an “off-year” in their biannual cycle that has had drier than normal conditions and hail damage to some coffee trees. ICE exchange coffee stocks rose by 10,073 bags on Tuesday, and that has already resulted in the second largest monthly increase since January of 2021.
The market acts like the global economy is in a strong recovery mode. March cotton technical action remains quite bullish with the market trading sharply higher on the session yesterday. The market opened near steady on the day but outside market forces helped support, and March cotton experienced the highest close since September 23. A week US dollar plus strength in many key commodities helped to spark strong gains. Uncertainty of cotton production in India and Pakistan added to the positive tone. Strength in the other grains plus the uptrend in crude oil were also factors to help spark buying. India’s cotton output will likely be 33.98 million bales of 170 kilograms each in the year that began on Oct. 1, compared with an earlier estimate of 34.4 million bales, according to the Cotton Association of India.
Sugar prices have pushed to a new 5 1/2 year high. With three of the 4 largest producing nations looking at higher output this season, the upside may be limited. A sharp rally in the Brazilian currency provided the sugar market with carryover support as that eases pressure on Brazilian mills to produce sugar for export. Even so, sugar’s share of Center-South crushing during the second half of November was over 14% above last year’s share, which shows that mills continue to favor sugar over ethanol. Crude oil and RBOB gasoline extended this week’s recovery move which provided sugar prices with an additional source of support as that should strengthen ethanol demand prospects. While renewed strength in energy prices and the Brazilian currency can lift sugar prices up to a new multi-year high, the market is already looking overvalued at current price levels.
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